施貴寶 (BMY) 0 Q0 法說會逐字稿

Good day, everyone, and welcome to today's Bristol-Myers Squibb Company conference call.

Today's call is being recorded.

At this time for opening remarks, I'd like to turn the call over to the vice president of investor relations, Mr. John Elicker (ph).

Please go ahead, sir.

Thank you, Bill, and good morning, everyone.

First let me apologize for the delay in the call.

As you can see, the release is quite lengthy and I know you haven't had a lot of time to review it.

I'm sure you'll have a lot of follow-up questions and Sue Walzer (ph) and I will be here to take your questions throughout the rest of the day.

With me today we have Andrew Bonfield, our chief financial officer, who will have some prepared remarks and then we'll have time for a few questions.

Before we get started, let me take care of the legal requirement.

During the call, we may make various remarks about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on form 10-K and in our periodic reports on form 10-Q.

These documents are available from the SEC, the BMS website, or from BMS investor relations.

In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

With that, let me turn it over to Andrew Bonfield.

Thank you, John, and thank you all for joining us this morning.

I'm pleased to be able to provide our restated results for the market.

I know that many of you have been waiting anxiously for them.

We continue to work with PriceWaterhouseCoopers and expect to file our amended 2001 10-K and our 2002 third quarter 10-Q as soon as possible.

We will clearly describe our results, but I do want to make the point that this will be complex.

Once again, during this call, we will be discussing the restatement items, the restatement items' impact on our financial statements, the 2002 results, and our outlook for 2003.

As we've gone through the restatement process, we initiated a review of key accounting judgments in addition to the inventory-related issues.

As a result, we have made some revisions to our accounting policies to bring them into compliance with GAAP and certain other adjustments that are corrections of errors in the application of GAAP, including revisions of inappropriate accounting.

Let me start by reviewing the impact of the restatement on reported revenue.

The primary impact from the restatement is the timing of revenue recognition of approximately $2 billion in sales during the restated periods relating to the accounting for sales to two of our wholesalers.

As we said in October, the decision to restate was based on further review and consideration of the wholesaler inventory build-up situation, and incentives offered in our U.S. pharmaceuticals group and on advice from our independent auditors.

As a result of sales incentives, the average U.S. wholesale inventories of our pharmaceutical products increased substantially, primarily in 2000 and 2001.

We have determined that certain sales to two of the wholesalers, Cardinal and McKesson, should be accounted for using the consignment model and the associated revenue recognition based on the wholesaler sell-through to their customers.

We are using the consignment model for these sales as they were made as a result of the incentives offered, which covered substantially all of the carrying costs of holding the inventory and very directly with the amount of inventory in excess of the wholesaler's ordinary course of business levels.

The first question you may ask is why only two wholesalers?

The simple answer is that only our sales to Cardinal and McKesson met the criteria I just described.

This means that sales to other wholesalers were appropriately recognized upon shipment.

The next question will be, how does this restatement relate to the approximately $2 billion of wholesaler inventory worked down that we spoke about last year?

As you've seen in our release, we've restated approximately $2 billion relating to excess inventory at Cardinal and McKesson.

Additionally, we believe that during 2002, we worked down approximately $550 to $750 million at wholesalers not impacted by the consignment model.

This brings the total to between $2.55 and $2.75 billion.

Of this, approximately $150 million is due to the use of desirable inventory levels of two and three weeks at Cardinal and McKesson respectively, which are lower than our original estimates.

This results in a comparable estimate of approximately $2.4 to $2.6 billion as compared to the earlier estimate of $2 billion.

I would emphasize that these have always been estimates, and the process for arriving at these estimates is very complex.

We believe, however, that we now have better estimates for excess inventory held at our wholesalers at the end of 2001.

We also believe that the work down of excess inventory at wholesalers not impacted by the consignment model was essentially complete by the year-end 2002.

In 2003, we expect to recognize deferred revenue related to the two wholesalers for which we are using the consignment model.

I do want to point out that this was factored into our guidance when it was issued earlier this year.

There are three other items related to revenue recognition.

Sales returns, sales rebate accruals, and the DITF 01-9 reclassification.

Firstly, Bristol-Myers Squibb has historically accounted for sales returns based on actual product returns during the period.

Even though the practice of recording returns based on actual returns has approximated the accrual method of accounting, we have revised our accounting for returns to be in accordance with generally accepted accounting practice.

Secondly, as a result of the consignment inventory sales restatement described above, and to reflect the rebate accrual at the time the revenue is recorded, the company has revised its Medicaid and prime vendor sales rebate accrual balances.

This allocates the previously disclosed one-time adjustment recorded in the first quarter of 2002, which resulted in a decrease in sales and earnings of approximately $290 million and $262 million respectively to appropriate periods and reverses one-time adjustments.

We also changed our methodology for establishing managed care health sales rebate accruals to accrue an estimate for rebates at the time of sale rather than ratably over the period during which the managed healthcare entities to form their obligations under the agreements providing for rebates to conform with GAAP.

Finally, we have now adopted EITF 01-9, which originally began to apply in the third quarter of 2002 as of the first of January 2002.

This restatement results in a reclassification of costs previously included in advertising promotional expense to a reduction in sales.

The effect of the EITF01-9 was not material in the first and second quarters of 2002.

In summary, the total impact of the restatement to sales is in the periods 1999 to 2001, total sales have been reduced by approximately $2.5 billion, while sales in 2002 and 2003 have been increased by $1.9 billion.

The difference of $600 million is primarily due to changes in accruals for sales returns, rebates, and the EITF reclassification.

In 1999, sales from continuing operations were reduced by $400 million from $16.9 billion pre-restatement to $16.5 billion post restatement.

In 2000, sales from continuing operations were reduced by $700 million, from $18.2 billion pre-restatement to $17.5 billion post restatement.

In 2001, sales from continuing operations were reduced by $1.4 billion from $19.4 billion pre-restatement to $18 billion post restatement.

In 2002, sales from continuing operations were increased by $1.5 billion to $18.1 billion post restatement.

In 2003, we estimate the net sales from continuing operations will be increased by approximately $400 million as we recognize the deferred revenue remaining on the balance sheet as of the 31st of December, 2002.

Again, I would like to point out that this deferred revenue was taken into account when we gave our 2003 earnings guidance of $1.60 to $1.65 per share.

As I mentioned before, there are other adjustments and corrections not related to the build-up of wholesale inventories included in the restatement.

The other items relate to capitalized research and development expenditure, the Ogasartrin (ph) transaction, acquisition reserves, divestiture liabilities, restructuring liabilities, litigation accrual adjustment, taxation, the dividend accrual, and other miscellaneous items.

As there are detailed descriptions of each in appendix 1 to the release and in the interest of time, I will not go through each one of these.

The restatement adjustments and corrections affecting periods prior to 1999 -effective periods prior to 1999, and as a result, opening retained earnings for 1999 were reduced by approximately $578 million.

Of this, approximately $429 million is due to the revision in the accounting policy to conform to the GAAP requirement that the liability for declared dividends be recorded as of the declaration date rather than the record date.

This has no impact on reported earnings in the prior periods.

This leaves a net adjustment to opening retained earnings prior to 1999 of $149 million.

After the impact of the restatement, net earnings from continuing operations for these periods are as follows: Net earnings in 1999 decreased by $300 million from $3.8 billion to $3.5 billion.

Net earnings in 2000 decreased by $200 million from $4.1 to $3.9 billion.

Net earnings in 2001 decreased by $400 million from $2.5 to $2.1 billion.

It's important to remember the net earnings were increased by $500 million in 2002 as a result of the restatement, and we expect an increase of approximately $200 million in net earnings in future periods.

In order to respect your time and to leave some time for questions, I'm going to briefly discuss our year-end 2002 results.

As you will see in the release, our 2002 reported earnings per share from continuing operations including non-recurring items is 96 cents.

I'm sure your next question is, how does this relate to the demand-based guidance we provided last year of $1.69 to $1.81?

This earnings per share number includes the impact of acquired in process R&D of $169 million, restructuring and other charges of $1.052 billion, offset by gains on sale of businesses of $30 million, and $235 million due to the settlement of certain prior-year tax matters.

The impact of these negative items on the earnings per share was 39 cents, offset by the impact from positive items of 10 cents.

Finally, as I've discussed in the past, the demand basis is not GAAP accounting.

For example, we have not restated for inventory work down at wholesalers not impacted by the consignment model.

Additionally, the other items in the restatement beyond the impact of the consignment model have affected 2002 reported earnings.

Sales for 2002 were $18.1 billion, essentially flat as compared to 2001 restated sales.

Acquired DuPont (ph) products added approximately $1.5 billion to sales for the year.

Domestic sales declined by 3%, principally as a result of the loss of exclusivity in the U.S. for Glucophage (ph) IR, Taxol (ph) and Buspar (ph), and the planned work down of wholesale inventory not accounted for using the consignment model.

Exclusivity losses accounted for decline of sales of approximately $2.2 billion.

Internationally, sales increased by 8%, driven by strong performance of Pravachol in Europe and Taxol in Japan.

As you've seen in the press release, strong worldwide sales of Pravachol, up 8%, Plavix (ph) up 61%, and Avapro (ph) up 20% were key drivers of 2002 sales performance.

Let me move onto some of the expense lines in the profit and loss account.

Gross margins declined to 64.7% compared to 69.7% in 2001.

This was principally as a result of the negative impact of lower sales of our high margin products such as Buspar, Taxol and Glucophage, and continued high-sales growth of our low margin oncology distribution business OTN.

We tightly managed expenses during 2002, and marketing, selling and administrative, advertising and promotion and research and development expenses were flat to up to 2% higher.

We've discussed many of the non-recurring charges throughout the course of the year.

Two principal items are the litigation provision, principally related to the Buspar and Taxol settlements, and the write down of the equity investment in ImClone.

Now let me spend some time on 2003.

As you've seen in our press release, our guidance for 2003 earnings per share is $1.60 to $1.65 per share.

This does not include the impact from any in-process R&D that may arise from any external development agreements.

This earnings per share range is based on our expectations for revenue growth driven by prescription trends.

Revenue expectations are supported by continued growth in our inline products like Plavix, Avapro and Pravachol, growth in our OTM business, and the introduction of Avilifi (ph) and Asavenivere (ph).

The majority of our revenue growth is expected be from volume from both U.S. and international growth.

Price is expected to have a small impact on growth.

While the loss of exclusivity should not play the same role as it did in 2002, there will be some revenue decline related to the loss of exclusivity from Monopril (ph), Serzone (ph) and Glucophage XR in the U.S., Taxol in Europe, as well as the residual impact of the prior exclusivity losses of Glucophage IR, Taxol and Buspar in the U.S.

Looking at the structure of the profit and loss account, I would like to start by looking at our gross margin.

As reported in our 2002 -- our 2002 year-end gross margin was 64.7%.

We would expect 2003 margins to remain around this level as the continued negative mix impact of OTN on gross margins will be partially offset by the growth in new products.

As we've discussed previously, we plan on continued investment behind our current growth drivers, new product launches, and our late stage pipeline.

Our plans include double digit growth in advertising promotional expense, a significant proportion of this will be in support of Avilifi, in addition to these inline products.

Sales force expense is expected to rise, reflecting the full year impact of the new Avilifi sales force and the absence of the above industry norm vacancy rates that we saw in the early parts of 2002.

Research and development expense is planned to be roughly the same as in 2002.

Our key focus will be delivering value from our late stage pipeline including Atazanavir (ph), Gerenoxicin (ph), Obatite (ph), CTLA4IG, LEA29Y and Antecovir (ph).

Given the strength of our late stage pipeline, our R&D investment will be relatively more focused on development as we've rebalanced on spending from discovery.

Approximately a quarter of our budget will be focused on discovery compared to around one-third in 2002.

Minority interest expense is expected to increase in 2003, driven primarily by the continued growth of Pravex and Avapro, which are structured as joint ventures with Sanofi (ph) and incur minority interest income and expense.

Interest expense is projected to be relatively flat year on year.

One other item I would like to touch on is pension costs and the impact on our 2003 expectations.

We expect the increased pension expense will negatively impact 2003 earnings by approximately 5 cents per share.

There are two things to note in this.

Firstly, this impact is already reflected in our earnings per share guidance range we've provided of $1.60 to $1.65.

Second, this increased expense which affects virtually every line of the profit and loss account is already embedded in the line item estimates I provided earlier.

In terms of cash flow, we would expect a rise in net debt levels partially driven by the litigation settlements.

However, we should remain strongly financed and our interest coverage should be in the mid to high teens.

Let me close with some general observations about 2003.

Once the consignment model is no longer applied, we expect the buying patterns and fluctuations in inventory levels of wholesalers will have an effect on our financial results in prior period comparisons.

We will obviously monitor this, and discuss it with you when we report our quarterly results.

You should also remember that our 2003 results will be impacted by the timing of exclusivity losses, and investment spending patterns for 2003 as compared to 2002.

In conclusion, completing the restatement is another important step in focusing the company on delivering our 2003 commitments.

From an operating standpoint, we are very focused on executing against our plans and delivering our 2003 results; continued growth of products such as Pravax, Avapro and Pravachol; a successful launch of Avilifi; delivering value from our late stage pipeline, Atazanavir, Gerenoxicin, Obatite, CTLA4IG, LEA29Y and Antecovir to name a few; and actively pursuing external development opportunities.

Now I'll hand it back to John.

Thanks, Andrew.

Bill, I think we're ready to go to a few questions.

Thank you, Mr. Elicker.

The question and answer session will be conducted electronically.

If you would like to ask a question, you may do so by pressing the star key followed by the digit 1 on your touch-tone telephone.

If you are on a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment.

We will proceed in the order that you signal.

We'll take as many questions as time permits.

Once again, that is star 1 to ask a question.

We'll pause just a moment to assemble our roster.

We'll take our first question from Mario Koso (ph), Lering Swan (ph).

Yes, in terms of 2002 moving to 2003, can you go over a little bit how we get numerically from 96 cents to $1.60 to $1.65?

I'm assuming there's the sales rebate of the deferred revenue of $400 million is going to be obviously aiding '03 earnings, and also I may have missed it, was there a revenue number given for 2003 in terms of a forecast?

Thank you.

Thanks for the question, Mario.

Basically we start off obviously with the 96 cents of earnings per share on a fully diluted basis.

Then you will need to take into account of non-recurring items, which we don't expect to recur in 2003.

That will give you a GAAP base that then you should be using for purposes of projecting to the 1.60 to 1.65 that we're talking about for next year.

As regards sales expectations, we did not give a revenue expectation -- growth expectation for next year.

But basically you should expect that the growth in sales will reflect the growth in revenue trends.

Thanks, Mario.

Bill, can we go to the next question?

Our next question will come from David Moskowitz, Friedman, Billings, Ramsey.

Couple questions here.

It's a little confusing.

Number one, let's just go to what Mario had said.

On the $400 million reserve in '02, I thought it was -- I had heard $200 million.

Could you clarify that?

And could you give us what the EPS impact would be on that?

That would be question number one.

Question number two is that I see revenues adjusted upward by about $1.5 billion in 2002 but EPS coming way down.

Could you go over the discrepancies there?

And you just mentioned that there's some GAAP discrepancies.

Could you just go over what we should calculate the base EPS level would be?

And I think that's it for now.

Thanks.

Just to clarify something which I did miss when I actually replied to Mario's question, which I think actually answers your question in part, in addition, obviously when we take the base of 96 cents, there are the non-recurring items which I spoke about in the call, which you need to take into account.

As I mentioned, the negative items are around about 39 cents in 2002.

On top of that, you've got to take into account, consider that there was inventory work down in those numbers in 2002, and that equates to somewhere between approximately 550 to 750 billion dollars of sales in 2002, which then gives you a base of which to work on a like to like basis.

Effectively, the 400 million deferred revenue you were speaking about, that will be reflected in sales as we go through the year, and it effectively equates to the underlying prescription trend, pharmaceutical prescription trends for our products as we go through into 2003.

That is not a reserve, by the way.

That is deferred revenue, just to correct one thing you said.

That will be reflected because what we will equate to finally in recorded revenues in 2003 is something which reflects that work down of 400 million will be effectively reflected in the numbers for 2003.

Thanks, David.

Appreciate it.

Bill, can we go to the next question?

Our next question comes from Steve Scala (ph), SG Cowan.

Thank you.

I'm sorry for asking the same question for the third time, but what is the 2002 earnings number post adjustments?

Is it $1.25?

And secondly, this $400 million which is being allocated to 2003, that is, I guess, in sync with the inventory work down, but why is it taking a full year to work that down, hence, why isn't that 400 million excessively allocated early in the year rather than throughout the full year?

Thanks, Steve.

Yes, you should take the 96 cents at the impact of non-recurring items as we mentioned, and then also take into account the work down that occurred outside which was not accounted for on a consignment basis, so effectively the work down on wholesale is not accounted for on the consignment model.

That will give you a number which is slightly higher than the $1.25 you're referring to there as a base for -- into 2003.

Effectively, 2003, because that work down will occur, will approximate a demand based number, be very close to a demand based number as we do not at this point in time expect any further work down from the other wholesalers because we believe we have virtually completed that work down process in 2002.

As regards the other question you had around the other items, those -- people are having around the other items, those will have no impact in '03. '03 revenue will be -- as regards when the work down is completed, what we are saying is that that completion, that process will occur throughout 2003.

As you will have noticed in the level we're working to is two to three weeks, and that is a little bit further than we originally estimated.

You will see in the release when we did the original estimations of inventory work down, that was based on work down to approximately four weeks of inventory for BMS products, approximately one and a half months for Sanofi products and approximately two months for non-exclusive products.

We'll take our next question from Carl Seiden (ph), J.P. Morgan.

Thanks.

A couple of follow-up questions if I can.

Again, just one more time on this issue of getting to underlying base earnings that we should be thinking of as your base off which growth can occur for '02, I just want to get clarity on what you're saying.

I understand the 96 cents, I understand that the non-recurring items that we should add to that are 39 cents.

On the concept of this additional inventory work down of 550 to 750 million from wholesalers other than the two you're identifying, can you give us your estimated EPS impact on that or are you leaving it for us to estimate that?

That's question number one.

Number two, will you at any time in the future give us product revenue detail, U.S., international and worldwide, for your estimated restatement for these periods?

Because we don't have that yet.

And if not, do you expect to get back to reporting that level of sales detail going forward?

That's my second question.

And if I could, just one more.

When we're talking about the benefit of deferred earnings in '03 being about 200 million, that comes up to about 10 cents.

Would that be what used to be your 4-cent benefit when you were talking in terms of a 61-cent impact of wholesaler stocking, 57% of which were worked out in '02?

We were looking for a 4-cent bump in '03.

I know that's not an apples to apples comparison, but now are we just saying there's a 4-cent bump in '03 on a restated basis versus actuals?

Thanks.

Ok, Carl.

There are a lot -- that is not one question, but five, and I'll try and answer as best as we can.

Because obviously this is something that you all obviously are very focused on.

The earnings per share base is 96 cents on a fully diluted basis.

The impact of non-recurring items is 39 cents for the negative items and 10 cents for the positive items.

The impact of the wholesaler work down is on top of that, which is between 550 and $750 million on the revenue line.

I'm afraid we're going to have to ask you to do the calculations of that for your own purposes.

We are not going to disclose that, but given you should be able to do a reasonable estimate based on the gross margins of the company and tax affecting it from there.

That gives you an effective base for 2002 on a GAAP basis which will be comparable to the 2003.

As regards the additional work down that's occurring in 2003 because of the deferred revenue, there will be no bump in 2003 in effect because there is no work down -- the work down is completed and the wholesale is not being accounted for on a consignment basis.

Because of the way the accounting works, effectively what this will mean is that although the 400 is revenue being recognized in 2003, it does not bump up earnings per share, per se.

It is just the timing of when that revenue is being recognized in the accounts.

Also as regards why is that number, the actual deferred revenue number 400 million higher than your expectations, which equated to around 4 cents per share, that is, again, because the level of inventory that we're working with is two weeks for one of the wholesalers, three weeks for the other, compared to four weeks for BMS products, six weeks for Sanofi products, and two weeks -- two months for non-exclusive products.

I think that's about as simply as I can actually answer.

I think that does answer your question, Carl.

But that is broadly how the actual numbers work.

As regards to guidance for 2003, effectively we will provide -- as you go through the year and you see the growth in sales, what will happen, although the growth rate will be slightly higher versus the scrip growth rate because of the movement in 2003, because of the work down that occurred in 2002, effectively the revenues will reflect actual prescriptions and reflect actual demand for the company's products.

That is where we come to that.

As regards detailed information, we will provide more detailed information on the sales once we get to our filings.

As regards going forward, yes, we do expect the more detailed sales analysis will be provided in the future.

I hope that answers your question, Carl.

It's a five-part question.

I think I've got everything.

Thanks, Carl.

Bill, can we go to the next question?

Our next question comes from Larry Smith, Gerard Klauer Mattison (ph).

I'm sorry if I'm slow, but could you go through how the deferred revenue of $400 million impacts profits in 2003?

Yeah.

Effectively, what will happen is as the prescriptions are written and the wholesalers supply the pharmacies, effectively that will be passed through into revenue in 2003.

So effectively, what you will see in the 2003 revenues is that 2003 revenues will be very closely linked effectively to the actual writing of scrips.

So what we're trying to say to you is, although that revenue has been deferred on the balance sheet and will be recognized in 2003, that will reflect the underlying demand for the company's products.

Thanks, Larry.

Can we go to the next question, Bill?

Our next question comes from David Reisinger (ph), Merrill Lynch.

On that question, so you mentioned no bump in EPS even though that $400 million will be recognized in 2003.

If you could explain that.

And then in terms of the quarterly outlook for 2003, if you can just talk about the trajectory from the numbers that were reported in the fourth quarter so we have a feel for how 2003 is going to progress.

The first one, what we're trying to describe is, in effect, the deferred revenue effectively sits on our balance sheet at the 31st of December almost as inventory.

So what it is, is it's -- although we have a sale that has been recorded, a sale that's been recorded to the wholesaler, we do not recognize that as revenue in 2002.

We have deferred that into 2003.

In effect, what that means, as the wholesaler draws down on their inventory, that will be recognized into revenue.

What we're trying to say to you is that there is no bump in 2003 as it reflects compared to the underlying demand for the company's products.

However, there will be a bump compared to obviously 2002 as we expect to see the fact that wholesaler buying patterns will more closely resemble prescription trends, whereas in 2002, we did not see that because there was a fundamental underlying difference because of the work down.

As regards the quarterly progression, I'd just like to go back to the comments I made earlier.

Obviously once the consignment model is no longer applied, we expect the buying patterns and fluctuations in inventory levels in the wholesalers will have an effect on our financial results from prior period comparisons.

In addition, you also need to take into account that the results for 2003 will be impacted by the timing of exclusivity losses that occurred in 2002 and are occurring in 2003.

And you need to consider what we are expecting to make our investment plans for 2003 as compared to 2002.

For example, as we mentioned that we are putting additional resources behind our new products, Avilifi is a new product launch that occurred in the first quarter.

Thanks, David.

Next question, Bill.

We'll go next to Barbara Ryan (ph), Deutsche Banc.

A lot of my questions have been asked, I guess.

If we go back to the base earnings again, it seems to come up with a level of, I guess, taking the midpoint of the 550 to 750 of $1.41.

Do you think that's reasonably appropriate assuming 16 cents from the work down from other wholesalers and then adding the non-recurring items?

Barbara, the 16 cents that you're referring to, you're assuming a margin of probably around about 65%, I presume, and a tax rate of around 22.5%.

I think that gets you broadly to the number you're referring to there.

Again, I would point out that this work down occurred in the U.S. and that 65.7% gross margin that we have for the corporation includes the other businesses, including things like OTN.

So you probably need to think that margin is on the low side.

So just seeing where your numbers are, I'm doing some quick and dirty calculations in my head to try and tie in where you're coming from, I think that number will be slightly higher in my opinion because of that issue around the margins.

Thanks, Barbara.

Can we go to the next question?

We'll go next to Jim Kelly (ph), Goldman Sachs.

Thank you very much.

Just on how we should be thinking about which products might be getting a bump up from the inventory work down relative to the way we're looking at some of the sales items here for the full year 2002.

I know we don't have the U.S. and international break down, but with Pravax sales up 61% in the year, yet prescriptions up 33, Pravachol sales up 8 with prescriptions up 5, and I know I'm mixing U.S. prescriptions with worldwide estimates, can you give us any sense for which products should be receiving some form of bump-up as we think about this inventory work down in 2003?

Jim, it will be across the board.

It is relating to all products across the board in.

Principally, though, it will be the BMS products that get the bigger kick.

Thanks.

Can we go to the next question?

We'll go next to Mara Goldstein (ph), CIBC World Markets.

Thank you.

I had a question.

You mentioned that there were some adjustments that were made that were non-inventory related.

One was an adjustment to capitalized R&D, and I'm wondering if you could please explain that, and also on your statement on margins, you did make a statement saying that there would be the negative mix effects of OTN versus some other positive new product mix effects.

Are we to take that as flat margin, or slightly negative, or slightly positive in your estimation?

Mara, as regards the capitalized R&D, prior to the company's investment in ImClone in the fourth quarter of 2001, the company's accounting policy for payments related to acquisition or license of patent rights was to capitalize such payments regardless of whether the underlying asset had received marketing approval from the FDA or other regulatory agencies.

What the adjustment is, is to bring the accounting policy now in line with what we did with ImClone in 2001, which is to write off all capitalized R&D payments unless the product has received marketing approval from the FDA or other regulatory agencies.

As regards the gross margin, I think we are saying that we expect them to be in line.

I am not going to give you a prediction whether that's a little bit up or a little bit down.

Thanks, Bill.

Can we go to the next question?

We'll go next to Richard Evans (ph),Sanford Bernstein.

Could you characterize to any extent whatsoever the state of affairs with the SEC investigation, and in particular, what I'm looking for is the extent of which you've been aware of the details of their interest so that we can have some confidence that those key questions are addressed in this restatement.

Richard, my comment is in view of the ongoing investigations, I'm not in a position to respond.

Thanks, Richard.

Bill, can we go to the next question?

We'll take our next question from P.J.

Sylvester (ph), UBS Warburg.

Good morning.

Thanks for the question.

Just on some cash flow issues, in terms of what the cap-ex for 2003 that you forecast, do we expect any additional lines outside of what's been announced recently with regards to the FTC, maybe the SEC, U.S. attorney's office, and secondly, the pension changes, what impact did that have on the cash flow statement?

As regards the first question on cash flow, we expect the level of capital expenditure to remain broadly in line with 2002 and 2003.

As regards the other items, again, in light of where we are in the ongoing investigations, I cannot respond to that.

And then the final element of the question was around pension funding.

The company made an additional funding payment of $325 million towards the end of -- in the fourth quarter of last year to continue to reflect the fact that we need to put additional funding into the pension fund.

We are not planning any additional funding in 2003 at this point in time.

Thanks, P.J.

I think we have time -- it's a little after 9:15.

We probably have time for two more questions, Bill.

We'll go next to Craig Baskin (ph), Loomis Sales.

Thanks for taking my question.

I'm just a little curious with all the restatements going on and the change in the accounting policies, I'm kind of curious what your auditors have been doing the last five years and if there's any thought to changing auditors.

Thank you.

I'm not going to comment on that question.

Thanks.

Bill, can we go to our last question, please?

We'll take our final question from Neil Sweig, Fulcrum Global Partners.

Thank you.

In view of the complexities of everything that has been stated, can you give us some broad indication as to when this year the company will feel comfortable in offering financial or earnings guidance for next year, which I am fearful of bringing up, but it is an overall important topic.

Thank you.

Thanks for the question, Neil.

Obviously we will review guidance and provide guidance for 2004 at the appropriate point in time.

I don't think it's appropriate for us to identify today.

We've had our financial people working around the clock to complete the restatement.

I don't think we've had time, really, actually to review our 2004 numbers.

We will review them later in the year as we with go through our budgeting process and we will give you a response to that in due course.

Finally, thank you again, all, for listening in, and thank you for your questions.

I know that a lot of you will have further follow-up questions, and as we said, both John and Susan will be available to answer those for you as best as we can.

Thank you again for your time.

It's important for you to know that the company views this restatement as an important step in focusing on our 2003 commitments, which are to focus on the growth of our end line products, successful launch of new products and to continue to develop the pipeline and to deliver our earnings per share targets for the year.

Thank you very much for your time.

That does conclude this Bristol-Myers Squibb conference call.

We thank you for your participation.

You may disconnect at this time.